Modern Monetary Theory: the post-Crisis economy misunderstood?

Chunping Liu, A. Patrick Minford and Zhirong Ou

No 17501, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We set out Modern Monetary Theory (MMT) as a full DSGE model, and test it by indirect inference on post Financial Crisis US data, alongside a standard New Keynesian, NK, model. The MMT model is rejected, while the NK model has a high probability. We then evaluate replacing the fiscal and monetary policies within the NK model by MMT policies, and find that they imply a material loss of welfare.

Keywords: Modern monetary theory; Dsge model; Fiscal activism; Wald test; indirect inference (search for similar items in EconPapers)
Date: 2022-07
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